Microstrategy will pump another $500 million into bitcoin

MicroStrategy currently holds the most Bitcoin on its balance sheet out of all publicly traded companies, amounting to a dollar valuation of around $3.2 billion — more than twice the value of Bitcoin held by Tesla ($1.4 billion).

It is the first time ever junk bonds will be used to fund a cryptocurrency acquisition. As Virginia-based Software Company, MicroStrategy intends to offer $500 million of senior secured notes with an annual interest rate of 6.125% in a private offering to qualified institutional buyers to finance the purchasing of more bitcoin.

Junk bonds are debt offerings by companies without investment-grade credit ratings and typically offer investors higher returns while carrying higher risk. Returns between 6.125% and 6.25% have been floated for the bonds, eclipsing the returns offered by treasury bonds.

“The notes will be fully and unconditionally guaranteed on a senior secured basis, jointly and severally, by MicroStrategy Services Corporation, a wholly owned subsidiary of MicroStrategy, and certain subsidiaries of MicroStrategy that may be formed or acquired after the closing of the offering,” stated MicroStrategy’s announcement.

MicroStrategy’s stock price soared throughout much of 2020 and 2021 in line with the rising price of Bitcoin. But holding Bitcoin on its balance sheet wasn’t enough to stop MicroStrategy’s stock slide, which eventually came when the cryptocurrency market dipped. Since Bitcoin peaked in early April, the MicroStrategy share price has sunk by 45%.

MicroStrategy also revealed the formation of a new subsidiary to hold its existing 92,079 Bitcoins, dubbed MacroStrategy LLC.

The notes are due 2028, making the tenor about 500 basis points over the seven-year treasury. MicroStrategy is paying more to issue debt due to bitcoin’s volatility and the inherent risk of this bond offering. MicroStrategy is only paying 6.125%, whereas to borrow in a stablecoin would generally be much higher. The firm is getting more advantageous terms in borrowing from the public debt markets than it would borrowing for leverage in the digital asset ecosystem.

The MicroStrategy CEO also disclosed that the tech firm’s Bitcoin investments improved the company’s financial performance significantly.

“We say Bitcoin is hope. Bitcoin fixes everything…that certainly was the case with our stock…. It imbued life into the company… Morale was dramatically boosted. We just had the best first quarter we’ve had in a decade.”